Heterogeneous Agent Models in Finance

Roberto Dieci, Xue Zhong He*

*Corresponding author for this work

Research output: Chapter in Book or Report/Conference proceedingChapterpeer-review

82 Citations (Scopus)

Abstract

This chapter surveys the state-of-art of heterogeneous agent models (HAMs) in finance using a jointly theoretical and empirical analysis, combined with numerical analysis from the latest development in computational finance. It provides supporting evidence on the explanatory power of HAMs to various stylized facts and market anomalies through model calibration, estimation, and economic mechanisms analysis. It presents HAMs with the mainstream finance a unified framework in continuous time to study the impact of historical price information on price dynamics, profitability and optimality of fundamental and momentum trading. It demonstrates how HAMs can help to understand stock price co-movements and evolutionary CAPM. It also introduces a new HAMs perspective on house price dynamics and an integrate approach to study dynamics of limit order markets. The survey provides further insights into the complexity and efficiency of financial markets and policy implications.

Original languageEnglish
Title of host publicationHandbook of Computational Economics
EditorsCars Hommes, Blake LeBaron
PublisherElsevier B.V.
Pages257-328
Number of pages72
ISBN (Print)9780444641311
DOIs
Publication statusPublished - 1 Jan 2018
Externally publishedYes

Publication series

NameHandbook of Computational Economics
Volume4
ISSN (Print)1574-0021

Keywords

  • Asset pricing
  • Bounded rationality
  • Comovement
  • Heterogeneity
  • Heterogeneous agent-based models
  • Housing bubbles
  • Information efficiency
  • Limit order markets
  • Stylized facts

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